Investors dig in for the profit reporting season

Investors dig in for the profit reporting season as the next test looms for $A
By Ric Spooner (Chief Market Analyst, CMC Markets)

After an hour’s trading, investors are taking a modestly positive approach to many stocks as they settle down to wait on upcoming profit reports. Around 60% of the stocks in the ASX 200 index have rallied this morning. The problem for the index is that the big sectors are weak. The big mining stocks are down in response to the stronger $A while the financial sector is flat.

The constellations have aligned for the Aussie Dollar. Stubbornly strong commodity prices combined with gradually improving export volumes are combining to force upward revisions in the outlook for both the Australian economy and its currency. At the same time, moderating expectations for a major improvement in US growth are delivering a downward correction in the US Dollar.

Chart followers will be watching resistance around .7740 to gauge whether these key drivers of bullish sentiment for the Aussie have run their course. The AUDUSD chart has developed a trading range since April last year. A fifth rejection of the borders of this range would be a bearish development for chart followers. On the other hand, a break above the key 38.2% retracement level that stopped the Aussie last April would be a sign of strength, creating potential for a move well above 80c.

Bargain hunters have moved quickly on James Hardie this morning. While its quarterly profit result missed expectations, this year’s cost increases and margin pressure should yield future dividends in the form of increased growth potential.

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